Banks continue to fight the wrong fight

Once in a while Martin Wolf is on fire. Economists can appear somewhat dissociated from real life. This piece is one where he strikes home. If you have any doubts about skepticism about banks then read this.

Did the economy at least benefit from the run-up in leverage? Hardly. We saw huge rises in banks’ exposure to one another, which worsened systemic fragility, and in the prices of – and debt secured against – property. Who thinks these provided durable benefits? Mr Haldane also noted that “The purchaser of a portfolio of global banking stocks in the early 1990s is today sitting on a real loss. So who exactly is it extracting value from these incentive distortions? The answer is twofold: short-term investors and bank management.”

He goes on to make the argument for ring-fencing (separation of retail banking from investment banking), and better capitalised banks.

Relevance to Bankwatch:

All in all, it is not that hard. When someone of Martins stature gets angry and writes a concise piece like this it all becomes clear.

Banks cannot innovate successfully using financial gymnastics. Innovation must come from customer focussed innovation, which sadly is nowhere in sight amongst the big banks who are fighting the wrong fight against government, rather than for their customers.